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Title: |
Financial Liberalization and the Stationarity of Money Multiplier |
| Author: |
Downes*, Darrin; Moore*, Winston; Jackson**, Dwayne |
| Author
Affiliation: |
*University of West Indies, Barbados; **University of the West Indies, Jamaica |
| Source: |
International Economic Journal, June 2006, v. 20, no. 2, pp. 227-240 |
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Publication Date: |
June 2006 |
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Abstract: |
In countries without an explicit inflation targeting mechanism, a stable relationship between the monetary base and the money supply allows policymakers to implement changes in monetary policy with a reasonable degree of certainty about the impact on the money supply. The relationship can, however, be influenced by major structural shifts such as financcial sector reforms. The present study finds that when structural change brought about by financial liberalisation is ignored, the unit root hypothesis is spuriously accepted. However, once this break is incorporated into the analysis, the multiplier exhibits no presence of a stochastic trend. |
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